Expert debt views & facts

What do you do when you can’t make your debt payments? When there just isn’t enough money to pay all your debts, your #1 priority has to be your priority debts (click here for more on this). As the name suggests, your priority debts are the ones you really can’t afford to miss: paying your credit card bills is important, but paying your mortgage / rent is essential.

Once you’ve set aside enough money for these debts, you can turn your attention to your non-priority debts.

Your non-priority debts
Your non-priority creditors may be prepared to renegotiate your payment terms. Rather than take you to court, they may prefer to give you some leeway (like accepting lower monthly payments) if they think this is the best way of recovering their money.

Before they agree to anything, though, you’ll need to show them that:

1. you’re facing financial problems and can’t pay them back as you’d originally agreed, but that
2. you are doing your best to repay your debts, and that
3. giving you some leeway is the best way they can help you do that.

Negotiating with your non-priority creditors
So first of all, do the maths. Figure out exactly how much disposable income you have every month – the amount you have left after your priority debts and unavoidable living expenses.

Then, figure out how much of this you can give to each of your non-priority creditors:

1. divide your disposable income by the total you owe to all your non-priority creditors, then
2. multiply that figure by the amount you owe each creditor – and offer the creditor that.

Example:
Imagine you owe a total of £6000 to 3 non-priority creditors:
Creditor 1: £1000
Creditor 2: £2000
Creditor 3: £3000

You can’t make the minimum monthly payments as your disposable income is £60 per month. You can offer:
Creditor 1: £10 (60 divided by 6,000 = 0.01 … and 0.01 times 1000 = 10)
Creditor 2: £20 (60 divided by 6,000 = 0.01 … and 0.01 times 2000 = 20)
Creditor 3: £30 (60 divided by 6,000 = 0.01 … and 0.01 times 3000 = 30)

This is called pro rata payment.

Then, get in touch with your non-priority creditors immediately – don’t wait for them to contact you.

• Tell them what problems you’re facing, and what you’re doing about it. Are you renting out a spare room, working longer hours, looking into debt solutions…?


• Tell them how much you can afford to pay them, and stress that this a pro rata payment, so the only way to increase it would be to pay less to your other non-priority creditors (and that’s something you can’t do).


• Of course, lowering your monthly payments will mean your debt will take longer to pay off, so ask if they’ll consider reducing / freezing the interest for a while, and / or waiving charges.


• If they agree to anything, ask them to put it in writing. Make sure you keep everything they send you, and keep copies of everything you send them.


• Even if they don’t agree, start sending them the amount you’ve offered, even though it’s lower than the payment they want you to make. As long as this really is the maximum you can afford, it’ll show you’re trying your best – and if the case ever comes to court, this could help the judge decide in your favour.


• Finally, always keep payslips, bills and all other financial information. It’ll help you calculate payments, and your creditors might want to see them.